Archive for the ‘Wal-Mart’ Category

Wal-Mart Delaware Action – Much To Do About Little

Monday, July 28th, 2014

There are certain topics in the FCPA space that are over-hyped.

The document request dispute in connection with a Wal-Mart derivative action is certainly one example.

By way of background, in the aftermath of Wal-Mart’s Foreign Corrupt Practices Act scrutiny, shareholders (as is fairly typical in instances of FCPA scrutiny) filed derivative actions against the company and various current or former officers and directors alleging, among other things, breach of fiduciary duties.  Derivative actions are subject to specific pleading rules and in connection with its filed complaint the Indiana Electrical Workers Pension Trust Fund (“Plaintiff”) made certain demands on Wal-Mart under Section 220 of the Delaware General Corporation Law.  Titled ”Inspection of Books and Records,,” Section 220 governs a stockholder’s right to inspect certain corporate books and records.

In response to Plaintiff’s Section 220 Demand, Wal-Mart agreed to make certain documents available, but declined to provide documents that it determined were not necessary and essential to the stated purposes in the Demand or that were protected by the attorney-client privilege or work-product doctrine.  To resolve the disputed document request issues, the Delaware Court of Chancery (a trial court) ordered Wal-Mart to produce certain additional documents.

Wal-Mart disagreed with the Court of Chancery’s order and filed an appeal with the Delaware Supreme Court arguing that the trial court erred in ordering Wal-Mart to produce documents that far exceeded the proper scope of Section 220 requests.

Despite the rather pedestrian nature of the document request dispute, some saw (or perhaps were hoping to see) monumental issues.

This FCPA Blog post sought to explain “why the issues before the Delaware Supreme Court are important to all compliance officers and corporate stakeholders, and how the outcome could influence compliance programs globally for decades to come.” Why was the Wal-Mart dispute, according to the FCPA Blog commentator, so important?

“Because at the heart of the appeal is the question of what misconduct by directors so taints them that shareholders are allowed to proceed with a civil complaint. When can directors be absolved from directing an internal FCPA investigation? And when can they ignore red flags of overseas misconduct and conduct business as usual?”

As highlighted below, none of these issues were on appeal to the Delaware Supreme Court.

Further, this FCPA Blog post stated that Wal-Mart’s appeal “could be the right forum for landmark changes to guide executives, directors, and compliance professionals for decades” and the commentator was hoping for the Delaware Supreme Court to “seize the opportunity to paint on the largest canvas possible, to illuminate new roles for those we’ve put in charge of compliance.”

As highlighted below, this did not happen either.

Hype aside, as framed by the Delaware Supreme Court in its decision, ”the sole issue presented for judicial determination was whether Wal-Mart produced all of the documents that were responsive to [Plaintiff's] Demand.”  Under the “necessary and essential” test applicable to Section 220 proceedings, and reviewing the Court of Chancery’s order under the abuse of discretion standard, the Supreme Court determined that all issues on appeal (both issues raised by Wal-Mart as well as Plaintiffs) were without merit and therefore affirmed the Court of Chancery order.

Specifically, as to the Plaintiff’s demand for officer-level documents, the court concluded that “officer-level documents are necessary and essential to determining whether and to what extent mismanagement occurred and what information was transmitted to Wal-Mart’s directors and officers.”

In its decision, the Supreme Court also addressed certain pedestrian issues such as the relevant dates of production, disaster recovery tapes for two document custodians, and the precision and specificity of certain document requests.

The Delaware Supreme Court also addressed an issue on appeal not presented to the Court of Chancery concerning the so-called Garner doctrine (a fiduciary exception to the attorney-client privilege in which stockholders are allowed to invade the corporation’s attorney-client privilege in order to prove fiduciary breaches by those in control of the corporation upon showing good cause).

In its decision, the Supreme Court acknowledged its previous dicta statements in which it endorsed the Garner doctrine in a Section 220 proceeding and agreed with previous Court of Chancery decisions applying the Garner doctrine in a Section 220 proceeding.

Applying the Garner doctrine to the Plaintiffs’ Section 220 demand, the Supreme Court agreed with the Court of Chancery that the Plaintiffs established good cause to order the privileged documents be produced because the Plaintiffs “had demonstrated a colorable claim against Wal-Mart” and that the information sought was not available via other means.  In short, the Supreme Court stated:

“The record supports the Court of Chancery’s conclusion that the documentary information sought in the Demand should be produced by Wal-Mart pursuant to the Garner fiduciary exception to the attorney-client privilege.”

The Supreme Court further found that the Court of Chancery properly ruled that Plaintiffs’ demands for certain work-product documents were legitimate under a relevant Court of Chancery rule because the relevant Garner factors overlapped with the required showings necessary under the rule.

In short, the issues presented to the Delaware Supreme Court, and the Court’s decision, merely concerned document issues relevant to pre-trial pleading requirements in a derivative action – hardly the momentous issues some had reported or predicted.

Moreover, although the Delaware Supreme Court appeal was viewed as Wal-Mart’s appeal, as a matter of fact, the Plaintiff also filed cross-appeals which the Supreme Court also deemed to be without merit.  The Supreme Court denied the Plaintiffs request that Wal-Mart should collect documents from additional custodians and also denied the Plaintiffs’ challenge to the Court of Chancery’s order requiring it to return to Wal-Mart certain privileged documents that were delivered to its counsel by an anonymous source.

For oral argument of the Delaware Supreme Court hearing, see here.

Friday Roundup

Friday, May 30th, 2014

Attend the FCPA Institute,  Wal-Mart fires back, up north, the race is on, deserving part 2, quotable, and a revised roundup.  It’s all here in the Friday roundup.

FCPA Institute

Join lawyers and other in-house counsel and compliance professionals already registered for the inaugural FCPA Institute July 16-17th in Milwaukee, Wisconsin.  The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills.  FCPA Institute participants will have their knowledge assessed and upon successful completion of a written assessment tool can earn a certificate of completion. In this way, successful completion of the FCPA Institute represents a value-added credential for professional development.

To register see here.

Wal-Mart Fires Back

This recent post highlighted various Wal-Mart shareholder proposals that touched upon FCPA issues.  As noted in the post, Institutional Shareholder Services (“ISS”) criticized Wal-Mart’s board for “fail[ing] to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures.”

Wal-Mart has fired back in this proxy filing which states, in pertinent part:

The Audit Committee and the Company are following the appropriate protocol for an independent, thorough investigation

As the Company has previously reported, the Audit Committee of the Board is conducting an independent internal investigation into, among other things, alleged violations of the FCPA and alleged misconduct in connection with foreign subsidiaries. Also, as previously reported to shareholders, the Company voluntarily disclosed the Audit Committee’s investigative activity on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission, both of which are conducting their own external investigations of these matters.

We believe that ISS’s recommendation that shareholders vote against the election of Mr. Walton and Mr. Duke because the Board has not disclosed “specific findings” regarding the FCPA-related investigations is at odds with the appropriate conduct of such internal and external investigations. We further believe that ISS’s request for disclosure of “specific findings” with respect to these ongoing investigations is contrary to the best interests of the Company and our shareholders because such a disclosure: (1) could interfere with, or distract from, the ongoing investigations; (2) is impractical, given that no final conclusions or findings have been made; and (3) could adversely impact the Company’s position in any current or future legal proceedings that may relate to these matters.”

As hinted at in the previous post, I agree with Wal-Mart’s position.

Up North

This previous post highlighted Canada’s first individual conviction for a bribery offense under the Corruption of Foreign Public Officials Act (“CFPOA”) including the specific facts in the action against Nazir Karigar.  Karigar was recently sentenced to three years in prison.

As noted here from Baker & McKenzie’s Canadian Fraud Law:

“Superior Court Justice Hackland ruled that Karigar “had a leading role in a conspiracy to bribe Air India officials in what was undoubtedly a sophisticated scheme to win a tender for a Canadian based company.” The Court issue[d] the following warning: “Any person who proposes to enter into a sophisticated scheme to bribe foreign public officials to promote the commercial or other interests of a Canadian business abroad must appreciate that they will face a significant sentence of incarceration in a federal penitentiary”.

In his reasons for sentence Justice Hackland stated that “The idea that bribery is simply a cost of doing business in many countries, and should be treated as such by Canadian firms competing for business in those countries, must be disavowed. The need for sentences reflecting principles of general deterrence is clear.”

As noted in this Osler alert:

“The [sentencing] decision noted a number of aggravating factors. First, the bribery conspiracy was sophisticated, carefully planned, and would have involved the payment of millions of dollars in bribes. Second, Mr. Karigar orchestrated a fake bid to create the illusion of competition and used confidential insider information to prepare the bid. Third, Mr. Karigar behaved with “a complete sense of entitlement.” Finally, Mr. Karigar personally conceived and orchestrated the scheme.

Several mitigating factors were also noted. The bribery scheme was unsuccessful. In addition, Mr. Karigar helped to shorten the trial by cooperating in the prosecution. Indeed, it was his exposure of the bribery scheme after a falling out with his co-conspirators, and his inability to secure an immunity agreement, that led to his prosecution. Mr. Karigar’s prior clean record, his 67 years of age and his failing health were also considered mitigating factors.”

For more, see here from Blakes.

The Race is On

This previous post regarding GSK’s scrutiny in China noted that one of the more interesting aspects of the scrutiny will be the enforcement competition between Chinese, U.K., and U.S. authorities.    The U.K. has unique double jeopardy provisions and former U.K.  Serious Fraud Office Director Richard Alderman has stated (see here):

“Our double jeopardy law looks at the facts in issue in the other jurisdiction and not the precise offence. Our law does not allow someone to be prosecuted here in relation to a set of facts if that person has been in jeopardy of a conviction in relation to those facts in another jurisdiction.”

The race is on as GSK recently disclosed:

“GSK has … been informed by the UK’s Serious Fraud Office (SFO) that it has opened a formal criminal investigation into the Group’s commercial practices. GSK is committed to operating its business to the highest ethical standards and will continue to cooperate fully with the SFO.”

In this release, the SFO states:

“The Director of the SFO has opened a criminal investigation into the commercial practices of GlaxoSmithKline plc and its subsidiaries. Whistleblowers are valuable sources of information to the SFO in its cases. We welcome approaches from anyone with inside information on all our cases including this one …”.

For additional reporting, see here

Deserving Part 2

Earlier this week, the African Development Bank (“AfDB”) announced:

“[T]he conclusion of a Negotiated Resolution Agreement with Snamprogetti Netherlands B.V. following the company’s acceptance of the charge of corrupt practices by affiliated companies in an AfDB-financed project. As part of the Negotiated Resolution Agreement, the Bank’s Integrity and Anti-Corruption Department levied a financial penalty of US $5.7 million against the company.”

The project at issue was once again the Bonny Island, Nigeria project and the recent AfDB action follows a March action (see here for the prior post) in which the AfDB assessed $17 million in financial penalties against other Bonny Island participants – Kellogg Brown & Root, Technip, and JGC Corp.

As highlighted in this previous post, in July 2010 Snamprogetti and related entities resolved a $365 million DOJ/SEC enforcement action involving Bonny Island conduct.

My comment is the same as it was in connection with the March AfDB action against other Bonny Island participants.

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is the AfDB deserving of any money from the companies?  As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project.  Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”

Why is the bank that loaned money to NLNG deserving of anything?  Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?

Quotable

In this recent Wall Street Journal Risk & Compliance Journal Q&A, Kathleen Hamann (a recent departure from the DOJ’s FCPA Unit) states:

“Tell me what companies should take from your time at the Justice Department now that you’re advising them on how to fulfill the requirements of an FCPA compliance program.

The first thing I would say is that companies shouldn’t just be thinking about the FCPA. There’s been such a proliferation of transnational bribery laws and domestic bribery laws that you may not [just] have an FCPA issue. You also have to think about the U.K. Bribery Act, you may have to think about the Corruption of Foreign Public Officials Act in Canada, [among others.]

A lot of the laws in other countries have complete defenses to liability for having a good compliance program in place. Having a good compliance program ahead of time not only helps prevent misconduct, but it also puts the company in a better position if something does go wrong. There are points all the way where a good compliance program and strong remediation can either stop an investigation, or really mitigate the consequences of the investigation, both in terms of the penalty and in terms of the reputational risk the company will take.

[....]

What do you tell companies about self-reporting allegations to the authorities?

I think it’s a much more complicated question than even five years ago. It used to be that you disclose to the Justice Department and the SEC; you deal with them and it’s over. But now: How many different jurisdictions do you need to disclose to? What if it’s a country with no mechanism for voluntary disclosure, or no mechanism to reward voluntary disclosure?

I also think there’s a perception that your only two choices are to voluntarily disclose, lay down and cooperate, and give the department everything it asks for — or fight from day one. Those aren’t the only two options. There are stages of cooperation where you can get full credit, without accepting everything that is said by the government as gospel.

You want to minimize disruption to your business operations , which can be one of the best incentives for voluntary disclosure.  The U.S. generally doesn’t do things like seize servers, but others do. It’s incredibly disruptive to business operations to have foreign law enforcement take your in-country server. There has to be a very clearheaded assessment of what jurisdictions are involved, how complicated voluntary disclosure will be and what the genuine benefits and risks are of the disclosure are.”

Revised Roundup

Last week’s roundup collected commentary regarding the 11th Circuit’s recent “foreign official” ruling.  The post has been revised to include several additional law firm alerts, etc. and now includes over 25 links.

*****

A good weekend to all.

 

Wal-Mart Shareholder Proposals Touch Upon FCPA Issues

Wednesday, May 28th, 2014

Wal-Mart’s annual shareholders meeting is June 6th at Bud Walton Arena on the campus of the University of Arkansas.  It sounds exciting, but like most corporate shareholder meetings, most of the action is in advance of the annual meeting as shareholders seek to have proposals included in the company’s proxy statement and management responds to the proposals.

Wal-Mart’s proxy statement includes three shareholder proposals each of which touch upon issues related to the company’s Foreign Corrupt Practices Act scrutiny.

The first shareholder proposal asks that the Board of Directors “adopt a policy that, whenever possible, the board chairman should be a director who has not previously served as an executive officer of the  Company and who is “independent” of management.”  The supporting statement for this proposal states in pertinent part:

“We believe the Board of Directors ability to provide independent oversight of management is compromised when the chairman of the board is not independent.  We believe that an independent Chairman who sets agendas, priorities and procedures for the board can enhance its oversight and accountability of management, and help ensure the objective functioning of an effective board. We view the alternative of having a lead outside director, even one with a robust set of duties, as adequate only in exceptional circumstances fully disclosed by the board. Investigations into bribery and corruption at Wal-Mart’s subsidiaries in Mexico, China, Brazil, and India, along with a recent National Labor Relations Board decision to authorize a nationwide complaint against the company for violations of federal labor law, highlight the need for enhanced oversight of Wal-Mart’s corporate culture and behavior. A board led by an independent chairman is best positioned to drive such change.”

Wal-Mart’s board of directors recommends that shareholders vote against the proposal.

The second shareholder proposal “urge[s] the board of directors to adopt a policy that Walmart will disclose annually whether Walmart, in the previous fiscal year, recouped any incentive or stock compensation from any senior executive or caused a senior executive to forfeit an outstanding incentive or stock compensation award, in each case as a result of a determination that the senior executive breached a company policy or engaged in conduct inimical to the interests of or detrimental to Walmart.”

The supporting statement for this proposal states in pertinent part:

“As of Q3 2014, Walmart has incurred $381 million in costs associated with investigations into alleged Foreign Corrupt Practices Act violations in Mexico, China, India and Brazil.  Walmart also recently pled guilty to federal and state criminal and civil  charges of illegally dumping hazardous materials, leading  to over $110 million in fines. Recoupment disclosure would allow shareholders to determine whether Walmart recouped compensation from any current or former senior executive for similar misconduct.”

Wal-Mart’s board of directors recommends that shareholders vote against the proposal and the proxy statement notes in pertinent part as follows.

“In sum, the Board believes that this proposal is unnecessary because existing SEC disclosure rules already require sufficient  disclosures regarding Walmart’s comprehensive recoupment policies and practices and because the report requested by the proposal would not include the full range of sanctions used by Walmart to address Associate misconduct.”

The third shareholder proposal requests that the board of directors authorize the preparation of an annual reporting on lobbying. The supporting statement for this proposal states in pertinent part:

“As shareholders, we encourage transparency and accountability in our company’s use of corporate funds to influence legislation  and regulation. Walmart is reportedly a member of the Chamber of Commerce, which is characterized as “by far the most muscular business lobby group in Washington”, spending more than $1 billion on lobbying since 1998. Walmart has experienced negative press because of its involvement with the Chamber that actively lobbies against the Foreign Corrupt Practices Act (“Wal-Mart Took Part in Lobbying Campaign to Amend Anti-Bribery Law,”  Washington Post, April 12, 2012). Walmart does not disclose its memberships in, or payments to, trade associations, or the portions of such amounts used for lobbying. Transparent reporting would reveal whether company assets are being used for objectives contrary to Walmart’s long-term interests.”

Wal-Mart’s board of directors recommends that shareholders vote against the proposal and the proxy statement notes in pertinent part as follows.

“The Board recommends that shareholders vote against this proposal. Walmart already discloses information about its lobbying activities and procedures (including the oversight role played by the Board), as required by existing law, regulations, and Walmart policies. The additional disclosures of proprietary and confidential information required by this proposal are unnecessary and would risk putting Walmart at a competitive disadvantage.”

Institutional investors often follow guidance of shareholder advisory services such as Institutional Shareholder Services (“ISS”) in voting on shareholder proposals.  As reported here and here, ISS is encouraging shareholders to vote for the proposals and an ISS report states:

“The board failed to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures.”

“Several years into the investigations and more than a decade after the actions at the heart of the allegations began to occur, shareholders still have little insight into the risks associated with the alleged compliance failures, and little reason for confidence that senior executives will be held accountable for any failures which are found to have occurred on their watch.”

To state the obvious (or perhaps not so obvious as the case may be), Wal-Mart’s FCPA scrutiny is still ongoing.  Yes, it has been approximately 2.5 years since Wal-Mart first disclosed its FCPA scrutiny in a December 2011 SEC filing and yes it has been approximately two years since the New York Times article that elevated Wal-Mart’s FCPA scrutiny.  However, it is typical (warranted is often a separate issue) for corporate FCPA scrutiny to last between 2-4 years and in some cases more from the first instance of disclosure to an enforcement action if any.

Friday Roundup

Friday, May 16th, 2014

Root causes, a mere $855,000 per working day, “bad in law,” scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Root Causes

Understanding the root causes of FCPA enforcement actions can help inform pro-active FCPA compliance policies and procedures.  Moreover, recognizing the fallacy of “good companies don’t bribe” can help set realistic expectations in terms of what FCPA compliance policies and procedures can and can not accomplish.

I will be talking about both topics during a free webinar “Understanding the Root Causes of FCPA Scrutiny and Enforcement” on Thursday, May 22nd at 2 p.m. (EDT).  The webinar is hosted by Hiperos and you can register here.

Wal-Mart’s Pre-Enforcement Action Professional Fees and Expenses

Over the past 1.5 years I have tracked Wal-Mart’s disclosed pre-enforcement action professional fees and expenses.

While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.

Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

In its 1Q FY2015 earnings conference call yesterday, Wal-Mart disclosed:

“FCPA and compliance-related expenses for the quarter were approximately $53 million. Approximately $34 million of these  expenses represented costs incurred for the ongoing inquiries and  investigations, and approximately $19 million was related to our global  compliance program and organizational enhancements.”

Doing the math, this equates to approximately $855,000 per working day.

While eye-popping, this recent figure suggests that Wal-Mart’s pre-enforcement action professional fees and expenses may have crested as the figures for the past two quarters were approximately $1.1 and $1.3 million per working day.

That pre-enforcement action professional fees and expenses are typically the most expensive aspect of FCPA scrutiny is a fact.  However it must nevertheless be asked – once again – whether FCPA scrutiny has turned into a boondoggle for many involved.

Is Wal-Mart’s conduct for which it is under scrutiny in violation of the FCPA?  Does it even matter?  See my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”

“Bad in Law”

In 2007, the SEC brought this FCPA enforcement action against Dow Chemical.  The enforcement action was based on allegations that Dow’s “fifth-tier foreign subsidiary” in India, DE-Nocil Crop Protection Ltd. (“DE-Nocil”), made “approximately $39,700 in improper payments to an official in India’s Central Insecticides Board to expedite the registration of three DE-Nocil products.”

It is always interesting to see what happens when the “dust settles” (see here for the prior post).

India’s Hindustan Times reports here as follows.

“As the Central Bureau of Investigation (CBI) did not attach evidence with the supplementary chargesheet against De-Nocil Crop Protection (presently Dow Agro Sciences India, a subsidiary of Dow Chemical of the US) and Agro Pack, the CBI special court, Haryana, at Panchkula, has discharged the companies in a case of bribing an Indian official to get their products registered. On December 30, 2011, the CBI had filed the supplementary charge sheet but attached no oral or documentary evidence. On Wednesday (May 7), special judge, CBI, Haryana, Rakesh Yadav ruled that being not supported by evidence, the supplementary chargesheet was “bad in law” and so the court could not take cognizance of it.  The accused companies no longer have to face trial.”

Query whether this end result is a function of the nature and quality of the India investigation or the nature and quality of SEC neither admit nor deny FCPA enforcement actions.

Scrutiny Alert

In case you missed April’s Buzzfeed report on Cisco’s alleged conduct in Russia, Reuters reports as follows.

“In a series of audits in 2009, Cisco Systems Inc. found that much of the business between resellers of its products and a Russian state-owned telecommunications company, Svyazinvest, could not be verified because it was either “misrepresented” or documents were withheld by the resellers, according to an executive summary of the audits reviewed by Reuters. The June 2009 report on the audits, other internal Cisco documents, and interviews with two sources familiar with the situation, raise questions about whether the company knew what was happening to telecom equipment sales going through its resellers in Russia, as well as whether discounts were passed on to customers as planned.”

For the Reading Stack

An interesting Q&A in Mothers Jones with Ken Silverstein regarding his new book “The Secret World of Oil” and the alleged use of so-called “fixers.”  Note:  the FCPA’s anti-bribery provisions prohibit not only direct payments to “foreign officials” to obtain or retain business, but also indirect payments through various third parties.  Thus, the use of “fixers” if true, is not a way to avoid the FCPA.  Moreover, if Silverstein’s allegations are true, the U.S. government is perhaps ignoring (or not caring) about certain alleged conduct.  Further note:  the Q&A is not completely accurate concerning the James Giffen matter.

*****

A good weekend to all.

Wal-Mart Discloses FCPA Compliance Enhancements

Tuesday, April 29th, 2014

Last week Wal-Mart released this Global Compliance Program Report on FY 2014.

The report covered a number of topics including Foreign Corrupt Practices Act and related anti-corruption matters.  As previously disclosed (see here for the prior post), Wal-Mart details that in FY 2014 it has spent in excess of “$109 million on enhancements to its global anti-corruption compliance program and financial controls.”

This significant investment in FCPA compliance should be relevant as a matter of law in the future if a non-executive employee or agent acts contrary to Wal-Mart’s policies and procedures and in violation of the FCPA.  (See my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense“).

Compliance defense detractors say that such a defense will promote “check-a-box compliance” and a “race to the bottom.”

There is nothing “check-a-box” about spending $109 million on FCPA compliance enhancements in one year nor can one credibly argue that if other companies follow Wal-Mart’s enhancements and approach that this is a “race to the bottom.”

The key policy issue is this.

Wal-Mart has engaged in FCPA compliance enhancements in reaction to its high-profile FCPA scrutiny.

Perhaps if there was a compliance defense more companies would be incentivized to engage in compliance enhancements pro-actively.

A compliance defense is thus not a “race to the bottom” it is a “race to the top”  (see here for the prior post) and it is surprising how compliance defense detractors are unable or incapable of grasping this point.

In pertinent part, the Wal-Mart report provides:

“People

“[C]ompliance with the Foreign Corrupt Practices Act (FCPA) and other anti-corruption laws remained a key priority for the company. Walmart hired a number of anti-corruption directors and other anti-corruption staff in both its global headquarters and in its International retail markets during the year. The anti-corruption director for each market reports to a dedicated anti-corruption team in Walmart’s Home Office in Bentonville, Arkansas, which is led by the company’s Global Anti-Corruption Compliance Officer. Collectively, this global team is charged with conducting due diligence, developing and providing anti-corruption training, and overseeing the implementation of the company’s anti-corruption policies and procedures throughout the world.

To ensure that Walmart has an effective anti-corruption compliance program, the company continued to work closely with external anti-corruption compliance experts to continue reviewing, assessing and developing its anti-corruption program during the year. In total in Fiscal 2014, the company has spent in excess of $109 million on enhancements to its global anti-corruption compliance program and financial controls. With the addition of new anti-corruption resources, the company transitioned some anti-corruption compliance work from external consultants to internal staff during Fiscal 2014. This effort is critical to promoting the long-term sustainability and capability of the company’s anti-corruption compliance team.

Second, the company added personnel to the compliance program in its International division both through internal transfers of existing associates and through new hires. Notably, by the end of Fiscal 2014 the company had appointed 10 market-level CCOs in the International division to build and lead the compliance teams in the company’s retail markets. The company also appointed regional CCOs to lead and support the compliance organization within three international regions—LatAm (Argentina, Brazil, Central America, Chile, Mexico), Asia (China, India, Japan), and EMEA (Africa, Canada, U.K.).

[...]

Fifth, in Fiscal 2014 the company began the process of planning for and appointing teams of compliance monitors in all of its International retail markets. These monitors are known as Continuous Improvement Teams because of their mission to regularly review the company’s retail operations and assist the business in maintaining compliance with local laws and policies. In this respect, these international teams are intended to implement best practices that the company has learned in its U.S. retail operations, where similar compliance monitoring teams have functioned for several years.”

[...]

Improved Training

Anti-corruption remains a key focus for compliance training in all markets. Walmart’s anti-corruption training is designed to develop awareness and understanding of the relevant standards of conduct for associates and agents who interact directly or indirectly with government officials on the company’s behalf, among other topics. The training teaches the principles and processes embodied in the company’s Global Anti-Corruption Policy and anti-corruption procedures.

Between December 2011 and January 2014, the company delivered anti-corruption training to more than 100,000 attendees from all levels of the company around the world, including key senior executives and officers who interact directly or indirectly with government officials. This training was conducted in the local language where appropriate. This training was delivered in a number of ways, including via a computer-based learning module to provide consistent and effective anti-corruption training to a broader audience of more than 45,000 associates; in-person procedure and practical scenario training to more than 16,000 associates; in-person general FCPA awareness training in all markets to over 15,000 associates and ad hoc, and risk-based market-specific training to over 28,000 associates. In addition to training its own associates, Walmart has begun to provide training to certain third-party intermediaries and business partners.

The anti-corruption training provided over the last two years provides a solid foundation for an ongoing training regimen. The company will continue providing anti-corruption training in the fiscal year ending January 31, 2015 (“Fiscal 2015”) with the launch of an enhanced global anti-corruption training and communication program. This program was created in Fiscal 2014 to further define risk-based target audiences and design both global and market-specific training and communication plans and requirements.”

[...]

Policies and Processes

“Walmart’s Global Anti-Corruption Policy is part of the foundation for the company’s anti-corruption compliance program. Consistent with anti-corruption laws around the world, Walmart’s Global Anti-Corruption Policy prohibits anyone acting on behalf of the company from offering, giving or receiving anything of value to or from any person, including any government official, in order to improperly influence any act or decision or to otherwise gain an improper benefit for the company.  The Global Anti-Corruption Policy prohibits “facilitating payments” and also clarifies that any associate or third party who violates the policy will be subject to disciplinary measures up to and including termination and, where appropriate, referral of the matter to relevant law enforcement authorities.

In Fiscal 2014, Walmart continued to develop and enhance its market-specific anti-corruption procedures tied to this global policy. Among other issues, these enhancements related to:

  • Assessments of anti-corruption compliance risks;
  • Due diligence on third parties who interact with government officials;
  • Processes and anti-corruption-related contractual provisions for engaging third parties and business partners;
  • Business expenditures (e.g., meals, travel, entertainment, and gifts) involving government officials;
  • Charitable contributions and donations;
  • Acquisition or lease of property from government officials and agencies
  • Government inspections and any associated fines or penalties;
  • Memberships and sponsorships;
  • Training;
  • Record-keeping; and
  • Reporting and investigating allegations of violations relating to integrity.

Over the year, Walmart also continued to evaluate and improve the financial controls in its International retail markets using a team of internal personnel and external consultants. For example, during the year the company installed or amended financial controls for non-merchandise disbursements, employee expense reimbursements, and the sale of gift cards. To increase global and market-level knowledge of the company’s financial controls, the company established corporate-level and in-market communications tools that reported on the progress of the financial control enhancement project. Walmart also improved its in-market and corporate monitoring and reporting, including key control reporting, self-assessments, and certifications, to evaluate the effectiveness of its enhanced financial controls.

As Walmart’s business grows and the risk landscape changes, the company will continue to assess and improve its financial controls and global anti-corruption program.”

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Systems

A.  Third-Party Due Diligence

Third parties who interact with the government (including agents, consultants, and distributors) (collectively “TPIs”) could present potential compliance risks to international businesses. In Fiscal 2014 Walmart implemented a technology solution across all the company’s international retail markets to screen TPIs for anti-corruption and other compliance risks by collecting information on TPIs and comparing it with information from various databases. These databases help to expose some potential relationships between TPIs and foreign governments, identify whether the TPI has been subjected to certain government sanctions, and reveal adverse media stories about the TPI. The company also provided relevant associates in each market’s anti-corruption team with in-person training on the use of the tool.

B. Licenses and Permits

To systematize tracking of the company’s licenses and permits, the company selected a technology tool to manage licenses and permits in all markets and began the initial rollout of this system in four retail markets.

C. Compliance Monitoring

The company also began deploying an electronic tool for capturing monitoring data and tracking remediation of compliance issues identified by the company’s compliance monitors. The initial phase of the tool was installed in all of Walmart’s International retail markets, with a plan to deploy additional functionality in Fiscal 2015.”